Rate Hikes Are Back on the Table
April's hot inflation report... Energy prices are taking off... Even 'core' inflation is posing a threat... We're down 1 billion barrels of oil... How the world is bypassing the Strait of Hormuz... Trump goes to China...
A three-year high...
This morning, the Bureau of Labor Statistics released its consumer price index ("CPI") report for the month of April. The CPI rose 3.8% year over year. Not only was that above Wall Street's estimate of a 3.7% increase, it also marked the fastest annual increase in inflation since May 2023.
Since the CPI hit a nine-month low at 2.4% in January and stayed there in February, it has sharply increased for two straight months.
And energy is the main culprit...
In April, the energy component of the CPI soared 17.9% year over year. Under the "energy" umbrella, gasoline prices jumped 28.4% and fuel oil surged more than 54% from April 2025.
We've been covering the energy story in these pages...
The war in Iran has pushed up oil and gas prices. Oil has hit a four-year high, and the average price for gasoline in the U.S. is now above $4.50 per gallon.
With West Texas Intermediate crude at $101 per barrel today, oil prices are up more than 65% from the end of May 2025. And gas prices are up 42% from the end of May last year. In short, energy prices are continuing to increase inflation.
For May, the Cleveland Federal Reserve expects the CPI to hit 4.2%. That would mark a three-year high for inflation.
Even without energy, inflation is ticking up...
On a core basis, which strips out energy and food prices, the CPI rose 2.8% year over year in April – more than the 2.7% Wall Street expected. Like "headline" CPI, core CPI has ticked up for two straight months. It just hit a six-month high.
That's important for where interest rates go from here...
As we noted last week, both the markets and members of the Federal Reserve are beginning to shift their focus away from the labor market and toward inflation.
Today, the Senate confirmed Kevin Warsh to the Fed's Board of Governors. Now the Senate just has to vote on Warsh becoming the central bank's chair. CNBC expects that vote to happen tomorrow.
But Warsh has his work cut out for him. As our colleague Greg Diamond shared in an update to his Ten Stock Trader subscribers this morning...
If interest rates continue to rise, this should be a warning for the stock market, as bond traders will begin to price in the new Federal Reserve chair hiking rates rather than easing them.
That's exactly what we saw today. The 10-year Treasury yield rose, matching its year-to-date high of 4.45%. The market is now pricing in a 35% chance that the Fed will raise rates this year instead of lowering them, versus only the 2% chance of 2026 rate hikes priced in a month ago.
That's not what the market wants to see...
Stocks fell today, with the tech-heavy Nasdaq Composite Index leading the way lower.
Meanwhile, the Strait of Hormuz is still closed...
It has been almost 11 weeks since the war in Iran started. Even with a "ceasefire" in place, traffic through the Strait of Hormuz remains about 95% below normal levels. That means essentially 20% of the world's typical oil supply is out of commission.
As Dan Ferris explained in his May 1 Digest, even if the strait were to open tomorrow, it could take up to six months to clear all the mines Iran has deployed in the area.
And Amin Nasser, CEO of Saudi Arabian energy giant Saudi Aramco, estimates it will take "several months" for the oil market to rebalance. That's "the most optimistic scenario."
As CNBC reported, Nasser told investors on an earnings call that tankers are deployed in the wrong places, and ships need to be rerouted once the strait is reopened.
If the blockade extends into June, Nasser says the oil market won't return to normal until 2027.
For now, the world must get its oil elsewhere...
We've written before about how the Strait of Hormuz has disrupted energy markets. It also played a part in the United Arab Emirates ("UAE") leaving the OPEC oil cartel.
From the April 29 Digest...
Now that it's no longer a member of OPEC, the UAE could almost immediately increase its production by more than 1 million barrels per day and up to 1.8 million barrels by the end of the year.
That would lower oil prices in the long run... if that oil can hit the markets. But with the Strait of Hormuz closed, it can't.
You see, unfortunately, the UAE is heavily reliant on the Strait of Hormuz. As we wrote:
About half of the UAE's oil output and more than 90% of its natural gas exports pass through the strait.
Nasser estimates that the global market has lost more than 1 billion barrels of oil since the conflict began.
Still, demand for energy products hasn't disappeared. As our colleague and Market Maven editor Gabe Marshank wrote in a special report...
The world doesn't stop needing oil just because a shipping lane gets disrupted.
So countries and companies are looking elsewhere to secure energy supplies.
The U.S. is one of the places helping fill the gap. The Energy Information Administration expects U.S. natural gas exports to jump 12% this year to 17 billion cubic feet per day. And it's expected to grow another 9% in 2027.
U.S. natural gas exports aren't the only beneficiary, though. More from Gabe...
When Middle Eastern supply gets threatened, buyers immediately turn to the sources of oil that don't require sailing through a contested waterway. These include offshore locations near the Gulf Coast, Brazil, and West Africa.
Demand for offshore oil, and the specialized vessels needed to drill and transport it, is soaring. Gabe continues...
Meanwhile, the biggest oil companies on Earth – like BP (BP), Chevron (CVX), ExxonMobil (XOM), and Shell (SHEL) – are all racing to lock up rig contracts. Some of them are signing deals years in advance, because they know the math as well as anyone.
This isn't the only spot in the energy sector where Gabe sees opportunity. With AI demanding more power and pushing prices higher (electricity prices were up 6% year over year in April's CPI report), Gabe believes we're headed for a full-blown power crisis.
That's why he filmed a free presentation highlighting the companies he believes will thrive during the energy bottleneck created by AI and the Strait of Hormuz closure.
If you haven't already, we urge you to watch a replay of Gabe's presentation here. And Stansberry Alliance members and Gabe's Market Maven subscribers can check out his latest research right here.
The next geopolitical catalyst...
Earlier today, President Donald Trump traveled to China for a state visit with Chinese President Xi Jinping.
Tensions between the U.S. and China, namely over tariffs, have taken a backseat with the ongoing conflict in Iran. But back in April 2025, strong tariff rhetoric pushed the market into a correction. And while the tariff rate has come down, there is still a 10% baseline tariff on all imports from China.
Trump briefly discussed tariffs last month in a phone interview with CNBC. As we wrote in the April 21 Digest, the conversation mostly revolved around the Supreme Court's decision to "undo" tariffs and leave the U.S. government on the hook for $165 billion in tariff refunds. The first batch of tariff refunds has begun to roll out.
We don't expect any new tariff announcements during this week's trip. But the story isn't over. Any news could bring the market's eyes back to this important geopolitical story. So folks should continue to prepare for volatility in their portfolios.
New 52-week highs (as of 5/11/26): ABB (ABBNY), Altius Minerals (ALS.TO), Applied Materials (AMAT), Advanced Micro Devices (AMD), Air Products and Chemicals (APD), BHP (BHP), CBOE Global Markets (CBOE), Ciena (CIEN), Cisco Systems (CSCO), Datadog (DDOG), Healthpeak Properties (DOC), EnerSys (ENS), iShares MSCI South Korea Fund (EWY), Exelixis (EXEL), FirstCash (FCFS), iShares Convertible Bond Fund (ICVT), Intel (INTC), KraneShares Bosera MSCI China A 50 Connect Index Fund (KBA), KraneShares Global Humanoid Robotics and Physical AI Index Fund (KOID), Lumentum (LITE), Nvidia (NVDA), Invesco WilderHill Clean Energy Fund (PBW), ProShares Ultra Technology (ROM), USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund (SDCI), Solstice Advanced Materials (SOLS), ProShares Ultra S&P 500 (SSO), Texas Instruments (TXN), UnitedHealth (UNH), and State Street SPDR S&P Semiconductor Fund (XSD).
In today's mailbag, feedback on Sunday's Masters Series essay from Stansberry Research senior analyst Gabe Marshank... and thoughts on yesterday's Digest, which discussed the latest in the Iran war... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"I enjoyed Gabe's 'honest' column. It should remind everyone how important character is. I was once hired by Merrill under similar circumstances." – Subscriber Alan F.
"Wow. What a state the world is in today. I believe Trump is on the right path to peace... Trump needs to wait before taking further action [on Iran] until after his visit to Beijing. He has no choice. I hope all goes well there... We'll see how it all ends up. Be patient with [the] administration. Hope for the world to be a better place and just roll with Mr. Market as it plays on." – Subscriber Tim L.
All the best,
Nick Koziol
Baltimore, Maryland
May 12, 2026